Fraud allegations at center of BP oil spill hearing

NEW ORLEANS — A federal judge on Wednesday delayed a lawsuit against a Texas lawyer accused by BP of falsely claiming to represent thousands of deckhands who lost money in the 2010 Gulf oil spill.

U.S. District Judge Carl Barbier agreed that the lawsuit should be put on hold, at least temporarily, while the criminal case against attorney Mikal Watts is ongoing. Watts’ lawyer said Watts expects to know by June whether he will be indicted.

Barbier also heard arguments on whether he should halt future distribution of money from a $2.3 billion fund for seafood industry workers until the court can determine the extent of the alleged fraud. It wasn’t clear when he might issue a ruling.

BP claims that more than half of the Social Security numbers on Watts’ client list were fake. The oil giant argues the money it agreed to put into the seafood compensation fund was inflated, based on the belief that Watts — a former member of a steering committee of attorneys representing plaintiffs suing over the oil spill — represented more than 40,000 clients.

BP said it has already paid out more than $1 billion from the fund under a two-tiered payment plan. Under the settlement, a second round of claims and payments was to begin if there was money left over after the first round, according to BP court filings. The date for the second-round payments has not been set. Barbier noted it was likely months away.

There should be no second-round payments until the fraud allegations against Watts are more fully investigated, BP attorney Kevin Downey said.

Jim Irwin, attorney for the class suing BP and others over the oil spill, said it was BP’s duty to investigate whether claims were legitimate.

And people who may be due legitimate payments should not have claims delayed or denied because of allegations against Watts, he said.

“Proper restitution is to go after the people who committed the fraud,” Irwin said.

Although BP has publicly raised questions about the validity of some seafood industry claims, the focus of Wednesday’s hearing was not specific fraudulent claims that may have been paid out.